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Home Depot's 4Q Beats

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The world's largest home improvement retailer, The Home Depot Inc.’s (HD - Analyst Report) adjusted earnings for the fourth quarter of fiscal 2012 came in at 67 cents per share, surging 34.0% from the comparable prior-year period earnings of 50 cents, primarily driven by strong sales growth and improved operating performance. Moreover, the company’s quarterly earnings handily exceeded the Zacks Consensus Estimate of 64 cents a share.

Quarterly Details

Net sales of this Zacks Rank #2 (Buy) company increased 13.9% to $18.246 billion compared with $16.014 billion in the year-ago quarter, primarily driven by increased number of customer transactions and average ticket size. Sales, at the company’s comparable stores, improved 7%, while comparable store sales in the U.S. stores grew 7.1%. Moreover, net sales surpassed the Zacks Consensus Estimate of $17.693 billion.

Operating profit, during the reported quarter jumped 31.6% to $1.750 billion against $1.330 billion in the year-ago comparable quarter. Operating margin expanded 128 bps to 9.59% compared with 8.31% in the year-ago quarter. The improvement in operating margin was primarily driven by effective cost management.

Balance Sheet and Cash Flow

Home Depot, which competes with Lowe’s Companies Inc. (LOW - Analyst Report), ended the fiscal 2012 with cash and cash equivalents of $2.494 billion, long-term debt of $9.475 billion and shareholders’ equity of $17.777 billion. During the fiscal, the company generated $6.975 billion of cash from operations and deployed $3.984 billion toward share buyback, $1.743 billion for dividend payment and $1.312 billion for capital expenditures.

Dividend and New Share Repurchase Program

Subsequent to the fourth-quarter results, Home Depot’s board of directors has declared a quarterly cash dividend of 39 cents per share, representing an increase of 34% from the last paid dividend. The dividend, payable on Mar 28, 2013 to the shareholders of record as of Mar 14, 2013, will mark the company’s 104th consecutive quarterly dividend.

Apart from this, the company also authorized a new $17.0 billion share repurchase program, of which it expects to buyback nearly $4.5 billion worth of common stock in fiscal 2013. Since 2002 through Feb 3, 2013, the company has repurchased approximately 1.0 billion shares of its common stock by deploying more than $37.5 billion.

Outlook for Fiscal 2013

Bolstered by better-than-expected quarterly results, Home Depot expects its fiscal 2013 total sales to increase by 2% year over year, while comparable store sales are expected to increase nearly 3%. Gross margin is expected to expand marginally, whereas operating margin is anticipated to increase 65 bps. Tax rate is projected to be approximately 37%.

Based on the above forecasts, the company is expecting its fiscal 2013 earnings per share to grow by nearly 12% to $3.37. Moreover, Home Depot intends to open 9 new stores in the fiscal.

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